Exxon in Talks to Restructure Stake in Japanese Unit TonenGeneral Sekiyu

Exxon Mobil Corp. (XOM), the world’s largest company by market value, is in talks with its Japanese unit TonenGeneral Sekiyu K.K. (5012) to restructure its holdings in Japan and plans to remain in the country.

“No decisions have been made,” Kosuke Kai, a spokesman for ExxonMobil Yugen Kaisha, which holds a 50.02 percent stake in TonenGeneral, said by telephone today. “ExxonMobil has no plans to exit the Japan market and our customers will continue to enjoy ExxonMobil’s brands and products.”

TonenGeneral slumped to the lowest in more than 13 months in Tokyo trading after Reuters reported that Exxon plans to sell the bulk of its stake in the refiner. The Irving, Texas-based company may divest most of its holding and assets including its distribution network in Japan for about 400 billion yen ($5.2 billion), Reuters said today, citing people it didn’t identify.

“If Exxon’s stake declines, the Japanese refiner will need to draw up its own growth strategy” as domestic rivals struggle to expand their business outside Japan, Reiji Ogino, a Tokyo- based analyst at Mitsubishi UFJ Morgan Stanley Securities Co., said by phone.

Japanese refiners including JX Holdings Inc. (5020) have been investing upstream energy projects, overseas projects or renewable energy as the nation’s long-term demand is forecast to decline because of a shrinking population. Japan’s oil-product demand may decline at a rate of 3.5 percent a year through March 2015, according to an estimate by the country’s trade ministry.

‘Spur Consolidation’

A stake reduction by Exxon “could spur consolidation in the Japanese refining industry,” said Hidetoshi Shioda, a Tokyo-based analyst at SMBC Nikko Securities Inc. “This would reduce the number of domestic players and reduce excessive competition, and all Japanese refiners would profit from it.”

TonenGeneral plans to fund the purchase of Exxon’s stake by borrowing from banks, and the deal may be announced early this month and completed in spring, Reuters said. Exxon will retain a share in the company and supply crude oil to the refiner, according to the report.

“The report is not based on statements by ExxonMobil,” spokesman Kai said. “We have made no announcements and, as a matter of practice, we do not comment on market rumors or speculation.”

Japan Assets

For Exxon, the move would be part of plans to focus on exploration and production of oil and natural gas and move away from refining. Its unit, ExxonMobil Yugen Kaisha, also owns a 50 percent stake in Kyokuto Petroleum Industries Ltd., a joint venture with Mitsui Oil Co., which operates a 175,000 barrel-a- day refinery in Chiba, near Tokyo.

TonenGeneral fell 5.8 percent to close at 792 yen, the lowest since Nov. 17, 2010. The stock has slumped 12 percent in the past year, compared with the 18 percent drop in the benchmark Nikkei 225 Stock Average.

Exxon’s stake in the refiner is valued at about 238 billion yen based on current share prices.

“We have been doing business in Japan for over 118 years. In that time we have continuously innovated and adapted our business to meet the needs of society and the changing business environment,” Kai said. “In addition, we continue to look for opportunities to strengthen our competitive position in Japan and increase shareholder value.”

To contact the reporter on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

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